Uber suffers setback as EU rules that it's a transport service, not a digital company

The European Court of Justice ruled Wednesday that the U.S. ride-hailing app is a transportation firm and not a digital company

"This ruling will not change things in most EU countries where we already operate under transportation law," an Uber spokesperson said in an email shortly after the decision

Uber has long-considered itself an "information society service" which connects drivers and passengers through inter-mediation via their app

Uber is a transportation company, according to a landmark ruling from Europe's highest court.

The European Court of Justice (ECJ) ruled Wednesday that the U.S. ride-hailing app is a transportation firm and not a digital company. The verdict is a long-awaited judgment expected to have major implications for how Uber is regulated throughout Europe.

"The service provided by Uber connecting individuals with non-professional drivers is covered by services in the field of transport," the ECJ said. "Member states can therefore regulate the conditions for providing that service," it added.

Uber has long-considered itself an "information society service" which connects drivers and passengers through inter-mediation via their app. This subtle classification has helped to protect the multi-billion dollar start-up from national regulations and means it has been treated as a digital service operating across borders in the EU's single market.

However, several European governments have argued the U.S. company should be considered a taxi firm, and just like thousands of others, it should have to comply with European transport laws.

"This ruling will not change things in most EU countries where we already operate under transportation law. However, millions of Europeans are still prevented from using apps like ours," an Uber spokesperson said in an email shortly after the decision.

The ECJ's decision means Uber now faces national regulation in up to 28 member states, forcing it to deal more closely with local governments that set transportation rules and licensing requirements. This particular case cannot be appealed, according to Reuters, but it can pursue legal challenges in other courts.

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A phone displays the Uber ride-hailing app on September 22, 2017 in London, England. Uber is appealing Transport for London's decision not to renew its operating license.

How did we get here?

In 2014, a group called Elite Taxi in Barcelona asked a court in the city to impose penalties on Uber's operations in the country. The association claimed that Uber was engaging in unfair competition towards Elite Taxi's drivers, particularly with its UberPop service, which allowed non-licensed drivers to pick up passengers via the app.

The case was escalated eventually to the European Union's highest court — the ECJ — for advice.

Advocate General Maciej Szpunar said in May that, in his opinion, Uber is not an "information society service." To be considered such would mean the part of the service which is not made by electronic means is "economically independent" of the service. In Uber's case, the drivers would need to be "economically independent". Another factor to be considered is whether Uber provides the entire offering. For example, an online retailer has a website or app as well as shipping the goods it sells. In Uber's case, this would mean it essentially employs the drivers. Uber has said that its drivers do not work for the company and are independent.

The ECJ advisor said that Uber does not meet either of these two conditions and is therefore a transportation company.

The Computer & Communications Industry Association (CCIA), of which Uber is a member, said in a statement that the ECJ's ruling "effectively threatens the application of harmonized EU rules to online intermediaries."

"After today's judgment innovators will increasingly be subject to divergent national and sectoral rules. This is a blow to the EU's ambition of building an integrated digital single market," said Jakob Kucharczyk, vice president for competition and EU regulatory policy at the lobby group.

David Paul Morris | Bloomberg | Getty Images

Pedestrians walk past the Uber Technologies headquarters building in San Francisco.

Uber's European challenges

Uber launched in Europe five years ago and has since had a number of clashes with regulators as well as traditional taxi companies which have protested against the U.S. firm, which is worth around $66 billion.

In London, U.K., for example, Uber lost an appeal to a court which said that drivers on the platform must pass a strict English language test. In Italy, a court in Rome decided to suspend the app, but this injunction has been halted for now by a higher court. And in Denmark, Uber said in March it would shut down its operations in the country thanks to new rules.

However, the company has made strides to work with regulators. It is still operating in most EU countries and last year relaunched UberX in both Berlin and Madrid after being banned in the country, after it complied with local laws.

Greg Marsh, co-founder and CEO of onefinestay, told CNBC Wednesday that the majority of Uber drivers "really value" the company and the ride-hailing service was clearly "wildly popular" among consumers.

"If the majority of people want to use it as consumers and if a large proportion of the people who want to participate in it as drivers want it to exist then it seems a bit illiberal to say that we should be preventing it from operating," he added.